Events of the past month have left investors with terrified, sick feelings as trillions of dollars in paper wealth suddenly evaporated from world stock markets. Many are shaking their heads in disgust for not taking money off the table when they could have profitably and easily done so within the last year. I know I have!
Even industry professionals have been surprised by the carnage saying they have never seen anything like the recent market action we have just witnessed. And if the professionals are left scratching their heads, the average investor must feel like they are currently lost in the woods during a wicked snowstorm with little hope for rescue.
Safe haven investments, which normally perform well during negative financial events, have been decimated, adding to the state of shock and confusion.
The severity and the speed of the crash in the precious metals and their stocks caught practically everyone by complete surprise. The meltdown surpassed everybody’s expectations and has no historical precedents. As I have said in an earlier Hotline, “We are in uncharted waters.”
This is why it is so difficult to make any kind of prognostication about the future and where this gigantic mess leads. We simply have no precedent to look at from our past for the current circumstances we now find ourselves.
The main reason for this is because OTC derivatives didn’t exist historically. They are an immoral, corrupt, more recent creation on the part of so called “shrewd financial types” looking to make obscene amounts of profits with total disregard for the public safety. Many people including myself have been warning for years of the absolute destructive nature of these instruments. Few have listened until now.
To make matters worse, the carnage from these imploding derivatives is still only in its earliest stages. There is a mountain of this “financial sewage” (as Buffet calls it) that is still to come. The U.S. Dollar, which now seems to be defying gravity, will eventually crater to its intrinsic value (which is zero) before all this is over. The reason for this recent but absurd dollar strength was best explained in my opinion by financial analyst Rob Kirby who said the following:
“What folks need to understand is that the global OTC derivatives market, measured in tens or hundreds of trillions, is virtually all US Dollar denominated. Its SYSTEMIC failure, which is now occurring, requires US Dollar balances to clear (settle) the trades (bets). This has created the paradoxical global demand for US Dollars, the currency of a country that is fundamentally bankrupt. By rationing credit to hedge funds that were naturally levered and ‘long commodities’ (institutions like JP Morgan routinely took the other sides of their customers commodities bets, ruining institutions like natural gas player Amaranth), and propping up the balance sheets of those who were short commodities [such as] the Banks. The Federal Reserve led cabal of Central Bankers have ENGINEERED the collapse in commodities prices while creating the illusion (of a perverse US Dollar rally). The engineered collapse of the commodities complex became necessary in the eyes of monetary elites because the rush for tangibles and corresponding repudiation of fiat money was becoming manic, as so CLEARLY evidenced by the emerging shortages of precious metals, gold and silver bullion.”
There it is in a nutshell folks! I couldn’t agree more with what Mr. Kirby has so wisely written. You don’t need to look any further in understanding what has happened to us.
This is why I have been so adamant in saying that the Federal Reserve criminals and the monetary elites are the source of our plight as citizens. Their tinkering, bailouts, interventions, and utter stupidity are going to cause the greatest depression of all time. It is not a matter of IF; it’s a matter of WHEN will this occur?
Only “We the People” can stop the central banksters at this point from plundering the people. Do we have the courage and fortitude to want the real, dramatic, and necessary changes that it will take to save the country? Looking to Obama or McCain for the solution is a complete joke! Unfortunately, one of these liars is about to get elected and we the people are going to suffer for it.
In my own self interests, I am hoping that the bailing wire and duct tape they are currently using to keep the whole enchilada together will work for the time being giving people a bit more time to prepare. Of course I believe our precious metals and junior mining stock markets are going to rebound at some point, but “when” again is the great question.
The two keys to watch that will indicate to us that the bottom is in for the metals and shares will be:
1. When the paper trading short scams on the COMEX are forced to cover their positions2. When the dollar resumes its inevitable decline
My guess as to when these items could occur is based on several things.
First, there is a lot of attention focused on the December COMEX gold and silver contracts that expire sometime in the later half of November. This just may be the catalyst that we need as the precious metals prices blast off from their artificially suppressed levels due to massive short covering. Something has to give between the phony paper price of gold and silver and the physical supply demand imbalance for the metals. This in turn would at least begin a recovery for the mining shares.
Second, the timing of when the dollar resumes its downward trend is much harder to guess, but a hint may come from the following analysis by Gerald Celente of Trends Research Institute.
The Fed cannot print enough money to paper over the $531.2 trillion in derivatives and credit swaps, the trillions in the overbuilt commercial real estate market ready to collapse, the multi-trillions in leveraged buyouts going bust, and other exotic financial instruments that have turned toxic. Yesterday’s lowering of interest rates and the continual Fed action to flood the markets with money will lead to an era of hyper-inflation, the likes of which no living American has ever seen. We continue to forecast gold $2000. And once again, we urge you to take precautionary measures in view of a worsening global market meltdown.”
Hyper-inflation of this sort will absolutely drive the precious metals prices to levels we just can’t imagine. John Embry, of Sprott Asset Management, who was recently interviewed regarding this topic, believes as I do and said the following:
The US authorities will not hesitate to debase their currency in an attempt to salvage the financial system. In the fullness of time, this will be wildly inflationary and should propel gold and silver prices that would be viewed by many in today’s context as surreal.”
Wildly inflationary with extreme volatility is what you need to understand and keep in mind about our future. This is what you should expect given the current circumstances.
I maintain that people will be just as startled and surprised at how quickly the quality junior mining shares can and will recover. However, it will be a selective recovery as most juniors will never see their prior peaks of glory. Many of them will go out of business, be acquired, or merged to form a stronger company. But high quality, cash rich junior producers and explorers of precious metals who sit on the best deposits in the right areas will undoubtedly have a very bright future. Our portfolios must be re-aligned properly to take advantage of these changes. More on that topic in the company update section.
Once you make your adjustments and final preparations, all you can do is sit tight and wait to see what the future holds. In the end, as the realities of our day pan out, I believe you will be thankful you had exposure to the physical precious metals and their mining shares.
Fortuna Silver Mines Inc.(FVI)
Fortuna Silver is focused on becoming a mid-tier silver mining company and currently operates a mine in Peru that is generating positive cash flow. They also have an advanced stage project in Mexico that should be coming online very soon as well. Both projects are 100% owned by Fortuna.
The company is targeting 5.5 million ounces of annual metal production once their Mexican project (San Jose) comes online. Current production from their Caylloma Mine in Peru is producing at over 1000 tonnes per day. The company also has tremendous upside potential with exploration as they control a very valuable land package. As the profits from production come in, the company should be able to invest in themselves and create even greater value for shareholders.
Fortuna Silver clearly meets the criteria for the kinds of companies the market is looking for. With such a strong cash position and a growing cash flow from production, FVI should put investors back on the road to profits when our market rebounds. The stock price recently dipped to the $0.38 cent level and is a great value below $0.50 cents. Look to pick up shares if the price retreats near these levels.
Please view the company power point presentation that is on their website for more details.
Fortuna Silver is a BUY.
Company Updates (excerpted)
Argentex Mining Corporation(TSX.V:ATX) (OTCBB:AGXM)
Shares of Argentex have been hammered as most of the juniors have been in the last month. Their saving grace is that they have a major new polymetallic discovery on their hands which sooner or later will get the attention of the majors.
I am not sure what the company cash position is currently, but I’m sure they will need to start raising cash at some point in 2009. With Patrick Downey now on the board, he should be able to attract the right investors to get this done when the time comes.
Argentex is a BUY at current levels.
Excellon Resources Inc.(TSX:EXN)
Shares of EXN were down close to original recommendation levels this past month, but have since recovered a bit to the 29 cent level.
The company reported a loss $7,044,666 for the year ended July 31, 2008, and $4,829,394 for the three-month period ended July 31, 2008.
- Produced 1,476,676 ounces of silver, 9,790,717 pounds of lead, and 10,861,297 pounds of zinc;
- Received a new mineral resource estimate, more than doubling the indicated resource from May, 2006, and intersected additional sulphide mineralization since the cut-off date of the new estimate;
- Subsequent to year-end received all permits necessary for an on-site flotation mill and tailings impoundment area, procured all major equipment and began construction in October, 2008;
- Completed $10.0-million private placement equity financing;
- Loss of five cents per share.
The small loss is the company reinvesting their production profits back into the project. As the company gets their own mill up and running profitability should show up in the financials. EXN continues to build their resource and in my opinion have an excellent chance vastly increasing the mineralized tonnage of the Platosa deposit.
At the current ridiculous levels, Excellon is a STRONG BUY.
This article is excerpted from the latest issue of The Mining Speculator, edited by Greg McCoach. Greg is an entrepreneur who has successfully started and run several businesses the past 22 years. For the last eight of these years he has been involved with the precious metals industry as a bullion dealer (AmeriGold), investor, and newsletter writer.